New SEC Rules Require Mutual Fund Disclosure, Risk Management

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By Phyllis Diamond

Oct. 13 — Mutual funds will have to provide more disclosure about their liquidity and redemption practices and to have a risk management program, under rules adopted by the Securities and Exchange Commission (RIN 3235-AL42; RIN 3235-AL61).

The new rules adopted Oct. 13 also will allow mutual funds to use “ swing pricing”–i.e., they may adjust their net asset value to pass on to shareholders costs associated with their trading activity (RIN 3235-AL61).

The regulations are part of an SEC initiative to enhance monitoring and regulation of the asset management industry, the agency said in a release.

New Forms

Under the “reporting modernization rules,” registered funds will have to file a new monthly portfolio reporting form (Form N-PORT) and a new annual reporting form (Form N-CEN) that call for “census-type information” to be provided in a structured data format.

Funds also will have to enhance disclosures in their financial statements, and make new disclosures in fund registration statements about their securities lending activities.

The liquidity risk management rules will require mutual funds and exchange-traded funds to have programs that address a number of factors, including classification of the liquidity of portfolio investments. “The rules also strengthen the 15 percent limit on illiquid investments and will require enhanced disclosure regarding fund liquidity and redemption practices.”

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

For More Information

To see the disclosure rule, RIN 3235-AL42, go to https://www.sec.gov/rules/final/2016/33-10231.pdf.

To see the rule on liquidity risk management programs, RIN 3235-AL61, go to https://www.sec.gov/rules/final/2016/33-10233.pdf.

To see the rule on swing pricing, RIN 3235-AL61, go to https://www.sec.gov/rules/final/2016/33-10234.pdf

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